Month: March 2019

Lessons need to be learned, the capacity of markets, to maximise demand and not to overproduce. If you know you are overproducing, and still attempts too, you will see your rewards dwindle. My beliefs is that there is a market for everyone, to maximise your profits, to cancel destructive competition, by finding new products and services, which is part of the “new economy”. Knowledge is the key, to maximise your returns.

Let me give you an example. In the MP3 war, you have Apple leading the market, followed closely by Creative. Let’s assume there are only two markets, the US and Singapore. And the local demand for Singapore is 10,000 units per month and 90,000 units for export, the US market is 100,000 units and a furthur 150,000 units for export. Production capacity for Apple is 100,000 units per month and Creative is 25,000 units. The life cycle for each product is about 9 months whereby after that, price will decrease at a rate of 20% per quarter until the lowest price of 20% whereby the product will be handed over to OEM manufacturers. Directors, manufacturers, and stragedy planners, what do you have in mind to maximise your profits? What stragedy will you use? How do you acquire business intelligence? Do you let your product be determined by market forces? What happens when you overproduce? How do you increase your branding? How do you create brand loyalty? Let’s make this scenerio as real as possible. If you can sell Creative MP3 in Singapore at S$500 per unit but only S$400 in the US market, and the market share in Singapore is 40/60 and in the US is 20/80 for Creative/Apple. What are your options? And if you are able to control these factors, what will you chose? 1) Increase capacity to produce by another 15,000 units (Creative) at an investment of $100K to streamline your production lines. 2) Spent $100K at publicity campaign to increase sales in local market by 10% and US market at 8%. 3) Let’s say, all factors are under your control. How do you create branding and loyalty?

Anyone can provide me the answers? I will post them at this website. The idea is to find all the paths and options to maximise profit and create branding or loyalty. Everyone needs to harvest an intimate knowledge of whatever market you are in to maneuver against the market and competition. When I see a demand, I will race at maximum capacity, and when I see a falling market, I will pack up and reinvent. With in depth analysis, I have provided you the questions to find out the answers, to find out the different paths you can take, to maximise profits at minimum risk, to see the entire view of the market. And if I am even crazy, I will merge all this information, with accounting and budgeting info, seeking all the paths with the limitation of a budget, can I accurately assess my risks? Best of all, if I expand my vision, to include all the world’s market, including forex exchange, do you get dizzy all of a sudden? No, not really, everything can be segmented, with very clear objectives, goals and relationships, that is something, nobody has tried to do.

The “New Economy” is based on, preventing destructive competition. I believe there is a market for everyone, and competition is fine, but when competition start eroding profits until a loss, it is destructive competition. Everyone should help your neighbours. And if by helping you I created a friend rather than an enemy, I have created my future when I meet you headlong in direct competition, you will definitely give way to me. And if I teach you how to solve your own problems, you will be eternally greatfull, creating less an enemy rather than an ally, which will help you surged ahead. Economic schools need to reteach the young, how to read economic data and useful information, how to identify markets and determine demand and supply, and if a market is satuated to move away from it, find new markets or create new goods and services, to reinvent oneself. There is a lifespan in every good and service, and when it is no longer economically viable, it’s time to move on, to reinvent yourself, to find new markets or goods or services. Imagine, if you do not follow what I have taught you, even if you find success yourself and fell all your enemies, no one could afford to buy your goods and services when all are poor and cannot afford the riches you have created. FTAs, economic reforms, economic liberisation, and economic co-operation are all part of the “New Economy”. When you have goals, to reach a developed country’s status like the Swiss, “thoughts of wars”, the lessons of history, will have no place in the “New Economy”. If any country tries to do otherwise, sanctions will be imposed, trade restrictions, total blockade by the rest of the partners. Then poverty will be a lesson learned. The fundamentals of the “New Economy”, is that every human being is created equal, you do not need another superior race, to control another, learn how to solve your own problems, by adhering to strict principles, “you will reap what you sow”, being lazy has no place, being stupid is because you do not want to learn. By embracing the “New Economy”, in less than a lifetime, poverty will entirely be eraticated, from the face of this earth, poverty will only be, the domains of the warlike, on those who will rather use violence and their fists, to solve a problem. The message is very clear, “If you invest in destruction, you are only going to destroy your own self, if you invest in economic reforms, you are going to save yourself from poverty.”Likewise, example “if you got an Aid’s problem, and you are not going to invest sufficient resources, do you think the problem will go away?”. Most developing countries, have a major problem, of raising healthcare costs for the elderly, the maintainance and payout of pension funds, but little do they realise, the benefits of preventive medication, they only solve problems when it is too late, too costly. The promotion of a healthy lifestyle, the investment to promote health, and making sure your citizens are economically viable, even having enough resources, by planning for old age, is saving you future money, rather than being a drain to your coffers. There are jobs for everyone, even in old age, it’s just that productivity is not as high, and if you have invested in improving your knowledge when young, you will be a valuable tool, its just the access to old age funds will help you continue, a more comfortable productivity, a more comfortable lifestyle. Fact is, you don’t need to wipe tables in a foodcourt or collect cans and garbage if you plan for it, invest in knowledge and health, have sufficient savings to maintain a proper job and lifestyle. In the future, I see a developed Financial market that will utilise risk-based components to built a wide range of financial products, where the contribution of CPF ordinary can be use with co-insurance, to add on to the retirement fund, to ensure a more higher returns, to lock up savings for retirement. The Medisave can also be utilised, to buy other products, to minimise risk upon sickness, for outpatient care, or with other products to reinsure the cash component. A lot will depends on financial institutions, the pooling of resources, the reinvention of financial products with risk components, to cater to the needs of the market, and the ultimate goals of the government. I believe once the demands are established, there will be an automatic participation both by the private and government, to solve this teething problem encountered by all the nations.

Initially pay-per-use was the default revenue model in only a few industries, such as utilities (electricity, phone). But in recent years it has been spreading to industries that you would not have expected such as software and even automotive. The pay-per-use business model often combined with a subscription models are now common in these industries.

The economic benefits pay-per-use offers to consumers will make it a successful business model in more industries. Innovators who understand how to apply pay-per-use and subscription business models to their industry can be ahead of their competition […]

Do you remember the times where most software would cost you an arm and a leg? A hobby photographer buying a decent DSLR for $898 was only half done shopping. You’ll be quit another US $999 for the photo editing software (Adobe Photoshop CS6 extended version 2012). A too steep barrier for many people, missed sales for Adobe and even for the camera manufacturers.

But things have changed quite dramatically in recent years. Software is another industry where creative pricing models have emerged. Many start-ups were offering pay-per-use or its cousin, monthly subscriptions. This has put incumbents under pressure. And the big players have followed. Now you can get an Adobe Photoshop license from $10-$23 per month. This appears to be a more suited revenue model for a product that requires constant updates (service packs, etc) in any case.

Pay-per-use has been the forever pricing model in some industries. You name it: utilities (gas, water, electricity, landline phone). You pay a fixed access fee plus a variable fee for what you consume. Mobile phones offer you the choice between different size packages. One package may include 500 minutes talk plus 2 GB data per month. You lose what you don’t use. Things are very similar when you look at internet service providers.

You will find this combination of a monthly subscription model with a per-per-use charge on top in many other industries now.

Pay-per-use business models for durable goods?

Extending the pay-per-use business model to the software industry was enabled by the wide penetration of the internet and increasing bandwidth. Like utilities, software could now be distributed cheaply everywhere through the ether. You have large scale distribution at low transaction cost and improved protection against piracy.

But things get more interesting when it comes to durable goods, say cars. Until we have a Star Trek-like “replicator,” you can’t just send them through a data pipeline. And yet the pay-per-use pricing model has found its way into this market.

I am not talking about rental cars. Yes, they have existed for a long time. But ask yourself why are they are located near airports? Mainly because they are used by business people or tourists. The reasons are obvious: they are too expensive to rent, too time-consuming to pick up and only available for full days.

This makes them unattractive for most people. A situation where both lose the provider as well as potential consumers. On most weekdays (and even more so on weekends) you will see tons of rental cars collect dust on the rental car yard while at the same time some poor bugger curses having to carry their groceries home in the rain.

A good 35 years later the technology landscape had changed and the window of opportunity had opened. In 2000, Zipcar was one of the early-movers (and one of the biggest ones despite not having the first-mover advantage) to apply pay-per-use to cars.

The challenges to tackle

An important first step to establish the new business model to the automotive / personal transportation industry, Zipcar had to overcome a number of challenges. Let’s have a look at some of them and Zipcar’s solutions.

Distribution

Challenge: How do you get your durable good to the pay-per-use customer? Would you expect them to go to the airport to pick up a car for 2 hours, then return it and get home by public transport? On the other hand positioning the car in many locations adds new challenges. You would require additional offices (infrastructure), hire additional staff for those offices and so on. Not exactly a low cost base.

Solution: Zipcar is in selected cities and there only in targeted areas. Their cars are in clusters close to potential customers, e.g. around university campuses close to students. The cars are spread across different streets in the surrounding area. The cars are picked up from and dropped off at fixed parking spots without any supervising staff. A mobile app will show you all cars available near the customer’s location. You can reserve cars in advance or book available cars spontaneously.

Solution: The payment scheme is similar to utilities, an annual membership fee plus pay-for-use (automated transaction). The customer receives a membership card which is used as keys to the car and to identify the user. Users need to refuel when it drops below 1/4 of capacity.

Asset management

Challenge: Car share providers have to solve a number of other problems related to the condition of their asset, such as theft, damage, cleanliness, etc.

Solution: You may have already guessed that the cars are tracked via GPS. They can be remotely shut down. These are only two security measures without which insurance costs would be prohibitive. Additionally, there are also clear protocols around cleanliness, and technical issues. These are designed in a way that they use the customer for the reporting (rather than staff) and transfer accountability to the (likely) originator of the problem.

How to get started?

Is pay-per-use for your company’s products? Zipcar’s business makes sense. It provides economical benefits and addresses new market segments. It avoids large upfront payments (or taking up debt) and the subsequent depreciation losses. It is useful for student and others that can’t afford (or don’t like) to buy a car. In space-constrained cities like Singapore the taxes can easily triple the purchase costs of a car. In other cities parking costs

These type of circumstances can be a starting point for innovation ideas. Is there anything similar in your industry? Could you address new market segments or exploit inefficiencies with a pay-per-use model?

Once you identify such a starting point innovation tactics can help you elaborate the details of your idea.

Address concerns

Once you have the solutions best-suited for your innovation idea / industry you can take the next step. Pay-per-use opens new market segments. But it also comes also with some risk. A pure pay-per-use for example can cause higher volatility in revenues. It may as well risk cannibalising you own, more premium or revenue-generating offerings.

This will spook your CFO and CEO or whoever is the decision maker. You can alleviate risks by combining pay-per-use with a monthly or annual subscription fees with pay-per-use. Starting with your non-premium offering could also be very wise. This bodes also well with the fact that pay-per-use is economically more suited to the lower end of your customer base.

Pay-per-use business models will work well where you can allocate the cost of developing and delivering the service/product to the customer well.

And additional benefits

Once you remedy the risks, you can start pointing out the growth opportunities. The obvious one is to capture new customer segments because of the lower cost of entry and capture market share from your competitor.

But there could be more benefits. Pay-per-use and subscription models lend themselves better to incremental feature-adds, scalable product offerings and faster product-development loops. This can offer great insights, rapid feedback on which new features customers value (and which ones not).

With this comes a significant reduction of risk in your R&D endeavours. Imagine Microsoft invests a billion dollars into the next version of Windows to find out it flops (not unheard of).

For companies that are willing to take the challenge, this can significantly accelerate the organisational learning curve. You can reduce R&D risks and costs by stopping investing in low-value add functions. CFOs will appreciate the better returns on R&D investments and reduced risks.

When to start?

Established companies may want to trial pay-per-use on one of their new non-premium offerings. If you are a premium brand in your industry this will help you gain experience with this pricing model. This experience will be invaluable when you get attacked from other companies using pay-per-use.

If a pay-per-use model means a lower profit margin for your company, there will be significant organisational resistance to this innovation tactic. You will likely need a senior executive of your company to be the sponsor of this project.

If there is an economic benefit for some customer segments, then it is certain that someone will come up with this pricing model. Waiting until others force you to take this profit model seriously, would be the worst starting point.

If you are at the less premium end of your market you can be the first-mover on this business model. For new entrants and smaller companies this payment model is a real opportunity to capture new customer segments and enter the market from the lower end.

The power of innovation tactics!

We have touched three very different industries in this article and yet there were profound similarities. These industries had to solve the same same set of problems to make pay-per use business models work. I have mentioned the distribution, the transaction and asset management as an example. You can solve other challenges in a similar fashion by comparing across industries.

These examples show the power of innovation tactics. Innovation tactics will show you which challenges are key areas to focus on. Without knowing the challenges you will struggle to come up with a convincing proposal. It will also increase the risk of your ideas failing when trying to realise them.

If you look at the industries covered in this article you will see that the technologies are – understandably – different. However, it is striking that on a business level the challenges are so similar.

John Hagee 2019 - You need to fight for your dreams! [Great sermon]https://youtu.be/WXRH9XsQFn8* Copyright Disclaimer Under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, commenting, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that mig […]